“The choice of decent office stock in Nottingham is pretty appalling,” says Neil Walker, director at project consultancy Faithful+Gould. “We’ve been looking for better space in the city but have had to give up and stay where we are.”
Faithful+Gould occupies an 8,000 sq ft office in Beeston and wanted to move its staff to a single floorplate closer to the city centre. It abandoned its search after viewing seven properties, of which all failed to meet its needs.
“They either couldn’t accommodate us on a single floor, or were in the middle of nowhere with no amenities,” says Walker. “We viewed one on the edge of the city, but it really wasn’t a very pleasant location.”
He adds: “I was absolutely stunned by the lack of choice. The student market has taken a huge amount of vacant secondary stock out of the market and until key development sites are brought forward to deliver new grade A space, the problem is only going to get worse.”
It is a problem local agents have been grumbling about for years. NG Chartered Surveyors director Jonathan Seddon says: “The future of Nottingham city centre as a place for growing and established businesses is at risk.”
According to Lambert Smith Hampton, Nottingham has lost 20% of its office stock to residential development and student accommodation over the past decade or so. Agents acknowledge that permitted development rights (PDR) have assisted the office market by taking out a surplus of outdated buildings and making the city a more vibrant place to be. Yet Seddon argues that the pendulum has now swung too far the other way.
“Every day we talk to businesses that are frustrated that they can’t find quality stock,” says Seddon. “They simply have nowhere to go.”
Phil Quiggin, director at LSH, says: “The real issue isn’t the amount of space available overall, but the shortage of grade A.” According to LSH, at the end of Q1 2017, there was only 81,000 sq ft of grade A space available in the city centre, accounting for just 14% of overall office stock. Any occupier with a requirement of 20,000 sq ft-plus cannot currently be accommodated in the city.
“Even for those wanting just 5,000 sq ft, there are very few options once you scratch beneath the surface,” says Quiggin.
Scott Knowles, chief executive at East Midlands Chamber of Commerce, says the supply gap to be addressed. “Failure to do so could drive new or expanding businesses out of their town or city of choice, either to out-of-town business parks or to another town or city completely, and once a business establishes elsewhere, it won’t come back,” he says.
Up to now, the market has relied on refurbishing existing buildings to plug the gap. BMO Real Estate, for example, has reaped the rewards for investing in projects such as the 2015 refurbishment of 27,000 sq ft at 37 Park Row, attracting the likes of Thompson Solicitors and inward investor NOW: Pensions.
BMO has followed suit with the refurbishment of the 15,000 sq ft Agora Building and is now delivering a further 28,000 sq ft at the former Eversheds building, One Standard Place. Meanwhile, Charles Street Properties is refurbishing 19,000 sq ft at Canalside House and on King Street Five Interiors is delivering a further 17,000 sq ft at Fothergill House.
“These refurbs are all well and good, but they don’t address the shortage of quality new-build space,” says Seddon.
FHP associate director Mark Tomlinson says: “There needs to be a focus on providing new-build space, which at the same time will release some decent secondary stock. The problem is that rents need to move towards the mid-£20s per sq ft to make that viable.”
Unlike many competing regional cities, Nottingham’s office market has yet to break the £20 per sq ft barrier and with rising land values and construction costs, speculative new-build simply hasn’t stacked up.
Agents say firms such as KPMG, Deloitte and Gleeds have struggled to have their requirements met within the city centre, although none of them would discuss the issue with EG.
Matthew Smith, lead director in JLL’s Nottingham office, says: “You only have to look around the city centre and see how many major occupiers are stuck in dated office space to get a sense of pent-up demand.”
The squeeze on space is also threatening Nottingham’s chances of wooing footloose inward investors. Lorraine Baggs, head of investment at Invest in Nottingham, says: “We could certainly do with more grade A office space in the city to meet demand.”
Victor Ktori, head of office commercial at Savills, says: “We’re working with a couple of potential inward investors. One London occupier is looking for 30,000 sq ft. Nothing in Nottingham city centre can meet its needs and it is having to look south at West Bridgeford.”
Many in the market are urging the public sector to take a far more proactive role in encouraging and facilitating new office development.
NG’s Seddon says Nottingham’s local authorities need to intervene. “Those in charge at the local authorities need to be creative. They could quite easily introduce grants and loans for landlords who are willing to put their money where their mouth is and invest in office stock.”
Seddon also insists Nottingham City Council should work with the private sector to find creative ways of supporting new development. Agents point out that opportunities to form joint ventures have been missed – development partnerships and use public sector funds and covenants to stimulate the market.
Peter Carroll, head of portfolio investment and development at Nottingham City Council, recognises there is a shortage of grade A space within the city centre but says: “Nottingham city has an agenda to ‘Build a Better Nottingham’ and is working to follow through on schemes that will result in the city being a quite different prospect in the near future.”
In October 2016, the council finalised the sale of the Guildhall site to Miller Birch, clearing the way for a mixed-use development incorporating up to 100,000 sq ft of offices. Carroll says the local authority is also in talks with Conygar Investment Company about redeveloping the 38-acre Boots Island site and insists the council is willing to facilitate new commercial schemes around Nottingham’s Southern Gateway.
Carroll says the council’s willingness to find creative solutions to Nottingham’s office space shortage is best demonstrated through its work with Henry Boot Developments on the Angel Row library site.
The council is close to agreeing terms on a sale and leaseback deal on the site, which will eventually accommodate 120,000 sq ft of new grade A offices. “It will be an income split agreement that takes advantage of our covenant as a local authority,” says Carroll.
The council had considered allowing the library site to be converted to residential use before abandoning the idea. Carroll defends the use of PDR, yet he acknowledges there is a balance to be struck. He says: “We can help by resisting temptation and ensuring we retain as much space as possible within our own portfolio.”
Claire Robson
